Steel & Tube's unexpected profit downgrade last week has prompted brokers to downgrade the share price target of the steel manufacturer and distributor.
Steel & Tube's downgrade followed those of construction related companies Metro Glass, Fletcher Building and Methven, which announced either profit or earnings downgrades this year, Forsyth Barr broker Damian Foster said.
''While we didn't expect a [Steel & Tube] profit warning, equally it was not a great surprise,'' Mr Foster said.
Metro Glass downgraded in February, Fletcher Building in both February and March and Methven in May.
Steel & Tube said last week tough trading conditions towards the end of its full year 2017 trading meant earnings before interest and tax would be down 10%-15% on expectations; which mirrored a similar downgrade this time a year ago, for similar reasons.
Mr Foster said yesterday the ''four from four profit warnings'' from four building related companies this year; despite the buoyant building demand, reflected that capacity pressures were stemming growth and putting pressure on margins in the competitive parts of the supply chain.
''We have consistently highlighted Steel & Tube is a high risk stock with inherent earnings uncertainty,'' Mr Foster said.
It was operating in a fragmented and highly competitive industry and had minimal forward revenue visibility.
''We believe it has been losing market share and have heard anecdotes of a shallowing of the company's industry experience,'' he said.
Mr Foster said there was a ''sense of deja vu'' about Steel & Tube having released a similar downgrade warning a year ago which meant all four building related companies covered by the brokerage had issued 2017 profit warnings.
''This highlights that while the demand environment remains buoyant, it alone is not sufficient to drive earnings growth.
Forsyth Barr was maintaining a ''neutral'' recommendation of the stock, but lowering its target price from $2.55 to $2.35.
Steel & Tube had some ''definite positives'' in its favour with firming steel prices, a healthy domestic economy and buoyancy in the commercial and infrastructure sector.
However, Mr Foster said it was ''difficult to have confidence'' in Steel & Tube's earnings outlook because of the competitive pressures and margin sensitivity the company was experiencing.
''If the pressures that impacted the closing stage of full year 20177 continue it could represent further downside risk in full year 2018,'' Mr Foster said.
